David Smothermon, a former commodities trading executive, was sentenced to three years in prison for wire fraud after pleading guilty to hiding substantial trading losses from his employer. The sentencing was handed down by U.S. District Judge Alvin K. Hellerstein in Manhattan.
According to the U.S. Attorney for the Southern District of New York, Jay Clayton, “David Smothermon engaged in a fraudulent scheme that always ends badly: he concealed trading losses and inflated performance, induced his firm to award him a $15 million bonus, and when the losses were discovered, his firm was devastated. That devastation cost hundreds of jobs, including in New York. Our Office has no tolerance for insiders who like to enrich themselves at the expense of our fellow New Yorkers.”
Court documents show that between December 2015 and September 2016, Smothermon made false entries into his company’s accounting system to hide over $240 million in trading losses. He did this while serving as CEO of a Houston-based subsidiary focused on liquefied petroleum gas (LPG) trading and as a board member of the parent company headquartered in Manhattan.
Smothermon inflated values assigned to financial trading positions and directed others to alter physical contract terms within the accounting system. These actions misrepresented profits and allowed him to secure a discretionary bonus of about $15 million, with $11.6 million paid immediately in cash.
The scheme came to light in late August 2016 when discrepancies were found between actual contracts and accounting records. Smothermon resigned shortly after admitting he had mispriced his trading book. The resulting discovery led the company to realize large losses and prompted significant downsizing, including layoffs affecting hundreds of employees.
In addition to his prison sentence, Smothermon received three years of supervised release and must forfeit $11.6 million. He was also ordered to pay restitution totaling $19,550,081; he paid $8 million after pleading guilty and another $300,000 before sentencing.
Jay Clayton praised the Federal Bureau of Investigation for its work on the case. The prosecution was led by Assistant U.S. Attorneys Qais Ghafary and Matthew Weinberg from the Complex Frauds and Cybercrime Unit.
